2019 (9) TMI 147 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - identity, creditworthiness of the lenders / investors to advance such monies and genuineness of the transactions - HELD THAT - Assessee had, inter-alia, not only furnished copies of bank statements but also placed on record financial statements reflecting the source stated investments in the assessee company. This is coupled with the admitted fact that Shri Abhishek Morarka, director of as many as 3 entities visited the office of AO twice but still nothing adverse could be brought on record by AO to contradict the claim the assessee. None of the evidences submitted by the assessee were ever rebutted by Ld. AO but heavy reliance was placed on third party statements which were never confronted to the assessee and no opportunity of cross-examination was ever provided to the assessee. Nothing has been brought on record to establish the fact that any cash got exchanged between the assessee and investors which would corroborate the fact that assessee s unaccounted money got routed back in the garb of share capital. AO, while confirming the addition, has already admitted that the bank statements of the investors were duly furnished and there is no allegation of any immediate cash deposits in those accounts. No adverse inference could be drawn on bare facts that shares were subsequently repurchased by the promoters or similar shares were issued to the promoters at face value during the year unless the said facts were corroborated by any adverse evidences, which we are unable to find. Similarly, so far as the valuation of shares is concerned, we find that the assessee had justified the valuation by adopting discounted Cash Flow Method and the onus was on revenue to rebut the method of valuation. We are unable to find any such exercise by revenue Lastly, it is trite law that no addition could be made merely on the basis of suspicion, conjectures or surmises. The extent and degree of investigation carried out by Ld. AO do not inspire us to concur with the submissions made by Ld. DR before us. We are of the considered opinion that the revenue was not able to discharge the burden of disproving the genuineness of the stated transactions. - Decided in favour of assessee.

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act, 1961.
2. Requirement for proving identity, creditworthiness, and genuineness of transactions.
3. Adherence to principles of natural justice.
4. Evaluation of evidence and documentary support for share capital and premium.
5. Reliance on third-party statements and their confrontation.

Detailed Analysis:

1. Applicability of Section 68 of the Income Tax Act, 1961:
The judgment discusses Section 68, which allows the addition of unexplained credits to the income of the assessee. The proviso added by the Finance Act, 2012, effective from AY 2013-14, requires that for companies, the explanation about the nature and source of share application money, share capital, share premium, etc., must be satisfactory. This proviso is not retrospective, as confirmed by the Bombay High Court in CIT Vs. Gagandeep Infrastructure Private Limited.

2. Requirement for Proving Identity, Creditworthiness, and Genuineness of Transactions:
The law mandates that the assessee must prove the identity, creditworthiness of the lenders/investors, and the genuineness of the transactions to avoid additions under Section 68. Once these are established, the onus shifts to the revenue to disprove the claims. The Supreme Court in Lovely Exports P. Ltd. held that if share application money is received from alleged bogus shareholders, the Department can reopen their assessments but cannot add the amount to the assessee's income.

3. Adherence to Principles of Natural Justice:
The revenue authorities must confront the assessee with any adverse material used against them and provide an opportunity to rebut the same. Failure to do so renders the assessment proceedings nullity, as held by the Supreme Court in Andaman Timber Industries.

4. Evaluation of Evidence and Documentary Support for Share Capital and Premium:
The assessee provided detailed documentary evidence to substantiate the share capital and premium received, including PAN, financial statements, bank statements, and confirmations from investors. Despite this, the AO relied on statements from third parties alleging accommodation entries without confronting the assessee with these statements or providing an opportunity for cross-examination.

5. Reliance on Third-Party Statements and Their Confrontation:
The AO relied on statements from individuals like Pravin K. Jain and Abhishek Morarka, who allegedly provided accommodation entries. However, these statements were retracted, and the AO did not provide the assessee with an opportunity to rebut these statements. The Tribunal noted that the AO did not bring any material evidence to contradict the assessee's claims and relied solely on unverified third-party statements.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68, noting that the assessee had sufficiently proved the identity, creditworthiness, and genuineness of the transactions. The revenue failed to disprove the assessee's claims or provide any material evidence to support the addition. The appeal by the revenue was dismissed, emphasizing the need for thorough investigation and adherence to principles of natural justice in assessment proceedings.

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